Kaiser Getting Rid of Tobacco Investments


Kaiser Permanente, the nation’s largest health maintenance organization, over the past six months has been ridding itself of a potentially controversial investment of $5 million in bonds sold by tobacco giant Philip Morris Companies Inc., a Kaiser official said Wednesday.

Divestment of the bonds, which will be complete today, was “purely for financial considerations,” Kaiser spokeswoman Beverly Hayon said. But she acknowledged it comes as companies’ tobacco investments are receiving unprecedented scrutiny from anti-smoking forces and activists.

Hayon said Kaiser is in the process of reevaluating all its remaining tobacco investments and is “very sensitive to the fact that [they] would raise concerns.” The remaining tobacco investments--whose value Hayon said she did not know--are part of complex portfolios for retirees and require cautious handling, she said.

She said Kaiser has a “dual responsibility. . . . Yes, we are a health care organization, but we also have a fiduciary responsibility to our employees and retirees. We can’t do this lightly.”


The Philip Morris funds were relatively easy to divest because they were short-term liquid money used for day-to-day operations, she said. The divestment may allow Kaiser to sidestep an embarrassing public relations problem.

A Los Angeles-based consumer group Wednesday condemned Kaiser publicly for the Philip Morris investment and called for immediate divestment, saying the financial arrangement was “morally reprehensible” in light of the nonprofit company’s mission to promote health.

“Kaiser is denouncing the evils of tobacco while investing in tobacco bonds, propping up the sort of companies that are responsible for [products that are] a leading cause of death in the United States,” said Jamie Court, executive director of Consumers for Quality Care.

“Health maintenance organizations should never be part of such a health-impairing activity.”


The controversy highlights a dilemma faced by health companies and insurers as the heat is turned up in the anti-smoking movement.

Less than a week ago, tobacco companies, in an unprecedented settlement, agreed to pay $368 billion over 25 years to compensate states for the costs of treating smoking-related illnesses.

At the same time, activists and some stockholders are demanding financial accountability from companies that make their millions in health care. Like Kaiser, the nation’s largest hospital chain, Columbia/HCA, has come under fire for tobacco investments.

But consumer activist Court insists the matter is most urgent in the case of an HMO like Kaiser, because it is a nonprofit organization benefiting from tax-exempt status and has charitable obligations in health care.

Kaiser is not violating any law by investing in tobacco companies.

“There is nothing in law that precludes them from doing this,” said Matt Ross, a spokesman for the state attorney general’s office.

But Court argues that Kaiser has a moral responsibility to be consistent. The HMO sends out a strong anti-smoking message to its members, offering cessation classes, treatments such as nicotine patches and informational pamphlets at its facilities.

“Kaiser should not be denouncing smoking and profiting from tobacco-related investments,” he said.